CANADA FX DEBT-C$ closes weaker after trading in wide range

TORONTO, March 16 (Reuters) - The Canadian dollar finished lower against the U.S. currency on Monday, capping a day that saw it move with the quickly changing tolerance for risk.

The market appeared willing to take on more risk at the start of the session, with the stage set for a firmer tone in equity markets and positive remarks about the U.S. economic outlook on the weekend from U.S. Federal Reserve Chairman Ben Bernanke.

But as the North American trading day wore on, the gains on U.S. stocks disippated and so did those of the Canadian dollar. The Toronto Stock Exchange carved out its fifth straight higher close, but was well off the day’s peak.

“The market took its cue originally buying up risk and then taking it back, which really speaks to the type of choppy, volatile, illiquid trading that we’ve got in the market right now,” said Jack Spitz, managing director of foreign exchange at National Bank Financial Group.

The Canadian dollar finished at C$1.2735 to the U.S. dollar, or 78.52 U.S. cents, down slightly from C$1.2725 to the U.S. dollar, or 78.59 U.S. cents, at Friday’s close.

It had climbed as high as C$1.2635 to the U.S. dollar, or 79.15 U.S. cents, and as low as C$1.2797 to the U.S. dollar, or 78.14 U.S. cents.

The Canadian dollar was largely lagging other major currencies. In comparison, the euro hit a five-week high versus the greenback. [ID:FRX/]

“The one reason why we’re not getting more bang for the buck is that we still have commodity prices wallowing a little bit,” said Mark Chandler, head of North American fixed income and currency strategy at RBC Capital Markets.

Oil was moderately higher on Monday, but commodity prices appear to have bottomed, he said. Crude prices often set the direction of the Canadian dollar since Canada is a major oil exporter.

Data on Monday showed Canadian industries ran at a record low 74.7 percent of capacity in the fourth quarter of 2008, pulled down by weak demand for manufactured goods [ID:nN16]. The report had limited impact on the currency.

BONDS LOWER

Canadian bond prices were lower across the curve, but pared losses as stock markets retreated. When stocks are in favor because risk appetite is rising, the appeal of safe-haven government debt ebbs.

The two-year bond fell 5 Canadian cents to C$102.95 to yield 1.003 percent. The 10-year bond fell 10 Canadian cents to C$107.65 to yield 2.878 percent.

Chandler expects the 10-year bond yield to remain under 3 percent and end around there by year end.

“In the meantime I think there is bad news to come on the economy so we could take another leg down in yields. But what’s preventing it is outside of Canada’s borders there’s more concerns about supply pressures,” he said.

The 30-year bond fell 35 Canadian cents to C$124.45 to yield 3.611 percent. The U.S. 30-year bond yielded 3.761 percent.

Canada bonds outperformed across much of the curve, with the 30-year yield 15 basis points below its U.S. counterpart, compared with 8.3 basis points on Friday. (Reporting by Ka Yan Ng; Editing by Jeffrey Hodgson)